NGFS: A primer on climate scenarios

Established in December 2017, the Network for Greening the Financial System (NGFS) represents a consortium of central banks, financial institutions, and supervisors committed to enhancing the role and capability of the financial sector to identify, measure, and manage environmental, and climate-based risks; and to mobilize capital and financial investments to support the transition to a sustainable economy in alignment with the goals established in the Paris Climate Accord¹. The NGFS serves as a voluntary platform to promote best practices and methods with respect to climate- and nature-risk management, and to devise standardized climate change stress tests and climate scenarios for use both within and outside of its membership. This article provides a primer on the climate scenarios developed by the NGFS.

NGFS climate scenarios

The NGFS, in partnership with leading academic institutions,² have developed six distinct climate scenarios that provide a global, harmonized, and common framework for quantifying the impacts of climate change to the economy and global financial system. These climate scenarios, listed below, represent a wide array of possible climate futures. A complete description of these scenarios can be found in the NGFS technical documentation.³

• Net zero 2050
• Below 2 °C
• Divergent net zero
• Delayed transition
• Nationally determined contributions (NDCs)
• Current policies

The NGFS categorizes climate scenarios into one of three transition types including Orderly, Disorderly, or Hot house world, based on the climate scenario narrative and modeled global response to climate change. NGFS climate scenarios span varying degrees of climate change mediated transition and physical risk. Table 1 provides a qualitative summary of high-level indicators of climate induced risk. For scenarios in the Orderly transition, the global response to climate action is immediate and coordinated, resulting in low variability in regional climate policies, a moderate-to-fast pace of technological change, and a modest deployment of Carbon Dioxide Removal (CDR⁴) technologies. These actions limit global warming to < 2 °C, and thus result in low physical risk and low-to-moderate transition risks. In the Disorderly transition, failure to coordinate climate policy across sectors and/or a delay to climate action may result in significant regional differences in climate mitigation and strategy, as well as periods of rapid technological change. Climate scenarios in the Disorderly case can limit warming to < 2 °C resulting in low physical risks but may demonstrate higher transition risks compared to the Orderly case. Scenarios in the Hot house world case reflect climate ambitions extrapolated from nationally determined contributions or current climate policies. For scenarios in the Hot house world case, global action on climate change is incremental and ultimately insufficient to limit significant global warming, resulting in >~2.5 °C+ by the end of the century. Hot house world scenarios demonstrate low transition risk but result in severe physical risks including irreversible impacts such as increases in global sea level.